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Interesting how the "groundbreaking Private Cloud Compute" cannot rollout due to privacy laws
Yes because DMA doesn’t force 3rd parties to be groundbreakingly secure.

Literally anyone could whip up an AI service, get people to use it and just browse the unencrypted logs for data to sell.

Which is the issue Apple is having.

The DMA is not a privacy law.
Have you considered that the EU's privacy laws may simply be onerous and burdensome, and the fact that a web of red tape has caught another fly may not actually reflect on the privacy claims of "groundbreaking Private Cloud Compute"?
I think OP didn't question the privacy of their Private Cloud Compute, just Apple's bad faith: they claim they can't handoff data in a privacy-preserving way to 3rd-parties when they tout that they absolutely CAN handoff data in a privacy-preserving way to their servers.

Apple frames this as a privacy issue when it's only a brand/control issue.

That’s right, they can hand it over to their servers. And they’ve got special agreements with Google to do the same exact thing. That preserves privacy.

Is it possible to do that with absolutely any company that wants to be able to be the AI on your phone? Are most of those companies even capable of handling something like that?

That’s thorny.

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Europeans support that by and large. So either agree or have no ability to sell. This idea that companies know better about their users’ needs including privacy and choice is ridiculous. Apple is not a small company which is bullied as well.
put quotes on privacy laws.